How Exchange 4.0 will Digitally Transform Financial Market Infrastructure

HIRANDER MISRA | August 17, 2021 | 12 views

Powered by Ledgers: Leading Market Experts Predict How Exchange 4.0 will Digitally Transform Financial Market Infrastructure

The move to Exchange 4.0 is well underway, with profound implications for financial markets.

Forward-thinking firms are already positioning themselves for a DLT-fuelled future. But behind the buzzwords, there are lingering questions. What benefits will digitalisation bring, both to trading venues and the market participants they serve? What are the main obstacles to Exchange 4.0, whether they stem from outdated thinking or misaligned stakeholder incentives? And what sort of step-changes can we expect as digitalisation takes off?

In a recent report, Hirander Misra, Chairman and CEO of GMEX Group, and the Realization Group interviewed experts at firms pioneering the new world of crypto asset trading
  • Alokik Advani, Managing Partner, Fidelity International Strategic Ventures
  • Charles Kerrigan, Partner, CMS London
  • Jessica Naga, Director Responsible for Legal and Compliance, SECDEX
  • Anoop Nannra, Global Blockchain Segment Leader, Amazon Web Services
  • Nicholas Philpott, Director, Zodia
  • Duncan Trenholme, Head of Digital Assets, TP ICAP.

We summarise the key highlights and perspectives from virtually every stakeholder group involved in the trend towards digitalisation.

Introducing Exchange 4.0

Just as the world is experiencing a fourth industrial revolution, sometimes called 4IR, financial exchanges are beginning their own technological revolution. The 4IR concept is the driving force behind the Internet of Things, where AI and web technology combine to create smart products. A similar idea is taking hold in the world of financial market infrastructure enabled exchange trading, as DLT, smart contracts and tokenisation make it possible to facilitate true asset portability while linking far-flung liquidity centers.

But there is a great deal of confusion as to how distributed technology will change financial market infrastructure so that it can make the transition, be fit for purpose and what benefits it will bring. There are also significant roadblocks, either in terms of old-fashioned thinking or stakeholders defending their turf. Experts say it is only a matter of time before these obstacles are overcome. The first step, they say, will involve trading venues and participants developing a new mindset, one that embraces open-source practices. As Exchange 4.0 becomes better understood, and as firms move from proof of concept to bottom-line benefits, we can expect a rash of major changes. New trading centers, new products, new ways of doing business and new ways of enabling post trade are all on the way.

Creating the network effect

A growing number of exchanges and trading firms are embracing distributed ledger technology (DLT) and tokenisation, recognising a surge of interest in crypto asset trading from both retail and institutional investors. But many of the venues are replicating silo-based models and missing out on the most important lessons from the digital revolution. DLT, tokenisation and crypto asset trading offer a chance to create much larger market ecosystems by enabling participants to transact across borders more easily and by facilitating asset portability. Rather than divvying up the pie, it’s all about making the pie much larger.

“The key thing about this is asset portability,” says Hirander Misra. “If you look at marketplaces in this space, there are lots of exchanges across the world and there’s tumbleweed growing through most of them. How do you create that network effect? But then also, how do you focus on what you’re really good at?”

Misra says the problem starts with exchanges adopting a silo mentality, where they seek to service clients exclusively rather than building a more collaborative model. Trading, clearing and settlement end up being offered in a closed-in environment. “Essentially these exchanges are just pockets of their own liquidity.”

But the future could soon look very different. “You’re going to see exchanges, custodians and other services interconnect more seamlessly, with the ability to swap services and assets across jurisdictions and across different types of users to get that network effect. This is a construct that I have labelled Exchange 4.0,” Misra says.

What the Experts Expect
Provided that network effect can be created, what sort of benefits can firms look forward to? The list is long and varied.

Alokik Advani:“You have to try this in pockets of smaller assets, where it can be really efficient – private markets, alternative assets, private equity, venture capital, real estate, private debt. All of these things are obscenely inefficient. They trade like bulletin boards today. If you wanted to bring that to some level of an exchange-like infrastructure with a DLT backing and speed of clearing and settlement, it’s a revolution.”

Charles Kerrigan: “You are seeing the move towards digitalisation as a prime example of capitalism forcing change. You are talking about another wave of creative destruction. We have digitalised the front office of financial institutions – what you see as a customer – but the real benefits will come from digitalising the market infrastructure.  Crypto shows how this can be done.  Payments have learnt from that.  Securities issuance is following.  We are simply following the logic of the information economy.  This is a big one.”

Hirander Misra: “With Exchange 4.0, say you’re an existing exchange and you have existing infrastructure. You may want to set up a digital exchange, but you may not want to replicate everything you have. You may not need another matching engine, you may need digital custody or you may need issuance. The thing about Exchange 4.0 is that you can combine the services you have with services others have or augment what you already have. So, you’re not beholden to creating yet another siloed infrastructure.”

Jessica Naga: “There is something to be said for the countries that take the jump and do this now fast. They will have first movers’ advantage, if they build the necessary legal framework and infrastructural ecosystem in a sustainable way. The clear advantage of technology and FinTech companies is that their business is cross border and therefore from one centre, they can service the world.”

Anoop Nannra: “We look at Exchange 4.0 and the opportunities in terms of creating digital assets on virtually any aspect of our business. I think it’s really exciting, being able to create a futures index based on real-time solar energy production. Right down to the second. You create new patterns and opportunities for liquidity to occur. Capital historically will move to the environments where liquidity is most easily had.”

Nicholas Philpott,: “The locations and the cities that succeed in the future may no longer be the same as the ones at present. It’s a much more even competition now. If you can spin up a virtual exchange with none of that physical infrastructure that opens up the possibility of some very interesting developments as far as the new trading centres of the future are concerned. You’re broadening the market across a bigger spectrum of participants. More people can have access.”

Duncan Trenholme: “It’s possible that some of the private permissioned blockchains get traction in certain areas and solve certain use cases, but over time we believe the open permission-less blockchains will eat market share. The idea of running your own distributed ledger, in a centralised manner, just misses the point of what this technology can do. It’s repeating the limitations of vertical silo’s all over again. As people do connect, they’ll increasingly experience the benefits of transacting on an open, interoperable, and programmable financial system.”

A way forward

All of this leaves traditional venues and market participants having to prepare for a wholesale change in the way they operate while still conducting business in the here and now. At the same time, scores of new exchanges have sprouted up with DLT technology and digital assets that can only be traded on one platform.

By forging the DLT-based world of the future while still servicing traditional assets in traditional ways, we will see a hybrid model which bridges the gap between digital and traditional financial market infrastructure. This will serve to eradicate the current silos and fragmentation to facilitate better portability of assets by interconnecting the whole capital markets value chain of participants, across international nodes (jurisdictions), to more easily trade, clear and settle.

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With this, they can reach customers and provide them with purchasing offers. The Marketers’ Complications What were the practical problems or challenges for marketers approaching their customers right away? Markets face several roadblocks to achieving the desired level of personalized customer engagement. Some of these challenges include: Profile: Marketers usually face challenges in categorizing, compiling, and saving online and offline customers’ data. Identity: Marketers must deal with the fragmentation of customers' identities and how they see them across devices and channels. Relevant Communication: Marketers often fail to reach people at scale across different channels with relevant information. Measurement: Marketers often complicate the accuracy of measuring customer behavior, buying habits, and needs. Therefore, marketers need to sort out these parameters and then proceed strategically to deliver hyper-personalized engagement to customers. Now let’s find out how to do it. Solutions Emerging technologies, mainly AI, data analysis, automation, and blockchain, give an insight into customers’ needs, behavior, and activities like transactions, money transfers, deposits, availing insurance, and other banking activities. Marketers can leverage these technologies, crack code, use hyper-personalization in strategies, and work to meet customers’ needs. There are a series of interconnected strategies following technology in banking that will enhance the use of hyper-personalization in banking in the future. It will enable customers' digital requirements according to products and services and identify intent-based customers in the banking system. Series of Interconnected Strategies Customer Segmentation Having an accurate identification of customer profiles and details determines how to proceed with hyper-personalization. First, you must build a digital identity solution that links customer data across devices and locations. After this, study and get profound customer insights with the help of a third-party customer database to obtain accurate customer information such as: Demographics Online and offline purchases Digital consumption Online interactions Cross-device information according to the usage of personal devices By identifying these parameters, marketers can effortlessly create a community for their highly engaged customers. In this way, marketers can include value-proof hyper-personalization methods to reach out to customers and fulfil their expectations in banking. Lead Generation & Nurturing For lead generation and nurturing, marketers should activate paid search, paid/owned social media, and affiliate sites using intelligent and real-time customer data. This will help understand the effectiveness of the platforms in generating potential leads and nurturing them in the best ways. A Data-Driven Path Banks using customer data can monetize it by differentiating between actionable and non-actionable customers. Even so, they can conduct data-driven optimization (DDO), a measurable approach when banks interact with their customers. This approach includes monetizing and identifying customers’ behavior patterns and optimizing their decision-making processes faster and more accurately. In addition, data-driven optimizations range in different types and sizes—for example, new features, CTAs, pricing, page flow, navigation, and templates. With the help of these, marketers can get a lot of data and use hyper-personalization strategies accordingly. A Hybrid Environment Given the current situation, banks should prioritize intelligence by implementing a security-rich hybrid cloud for their hyper-personalization in their banking processes. With this in place, banks can efficiently, inexpensively, and rapidly deliver hyper-personalized services to customers under a hybrid setup. For this, banks should have a robust data analytic infrastructure that can filter the most operational customer data. Prominent Examples of Hyper-Personalization in Banking American Express Sends Videos to Increase Engagement American Express’s business model includes hyper-personalization of its customers globally. We’re delegating much deeper hyper-personalization at a company level.” Harry Mole, Director of Marketing at American Express American Express demonstrates its commitment to hyper-personalization by creating videos for its customers. For example, it makes videos accompanying a customer's monthly credit card statements. The video helps customers explore and learn new ways of managing their credit shares. It also helps them learn about account creation for new customers, share financial tips and tricks, and introduce new rewards. These activities further help consumers maximize the benefits of their American Express account. Since using a hyper-personalization strategy, American Express has seen a threefold increase in marketing conversations and a considerable decrease in the cost of acquiring new customers. Edward Jones Uses Personalization to Increase App Downloads Edward Jones, a financial services firm, offers a mobile app that allows customers to easily access their accounts and investment options. The app effectively conveys the benefits of security and convenience and is equally friendly. Edward Jones initiated an email campaign to encourage customers to download and engage with the entire app. It added a messaging section for app users and highlighted services such as tracking investments, depositing checks, transferring funds, and more without visiting a branch. Frequently Asked Question What do customers expect from their bank? Customers need assistance and want their needs to be understood by their banks. They do not prefer a generic approach to services. They prefer a more customized and solution-driven approach. How is the hyper-personalization approach implemented in banks? Hyper-personalization in banks can be implemented in the following ways: Compile essential customer data and utilize it to create strategies Create hyper-personalized content according to the customer base Distribute the content across channels to reach customers Why is personalization important in banking? According to a study by Gartner, 67% of customers are unaware of the services and products their banks offer. So, with the help of personalization, they can easily connect to banks’ offers, benefits, and services. This is where personalization comes into play.

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Spotlight

YouLend

YouLend delivers flexible and fast financing to SMEs. We allow our clients to convert future card sales and current invoices into cash today. That allows our clients to focus on growing and developing their business instead of wasting time on finance. YouLend provides the business community with an alternative to traditional banking products which is simple, transparent and easily accessible. We do this by applying modern technology to reshape the financing landscape for SMEs. Our mission is to give you the freedom to focus on growing your business and not worry about fixed repayments and long-term liabilities. Simply put; You only repay when you can.

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GMEX Group | April 18, 2022

London, New Delhi, 14 April 2021 - Hirander Misra, Chairman & CEO of GMEX Group, a leader in digital business and technology solutions for exchanges and post-trade market infrastructure, has received the prestigious Hind Rattan award. The Hind Rattan, translated into English as "Jewel of India", is one of the highest awards granted annually to non-resident persons of Indian origin in recognition of their outstanding services, achievements, and contributions in their respective fields. It is awarded by the NRI Welfare Society of India at the Society’s annual congress. The Hind Rattan Awards honour high achievers of Indian origin from professional disciplines. Over the past 41 years, the NRI Welfare Society of India has become a strong bridge connecting people of Indian origin with India. Its focus is to "strengthen emotional bonds" between the diaspora and the country. The Hind Rattan award was presented on 14th April 2022 during the 41st International Convention of Non-Resident Indians (NRI’s) at the Constitution Club in New Delhi. The award ceremony was attended by members of the Indian Parliament, the Government of India and the Supreme Court of India, other preeminent dignitaries, business leaders, celebrities and NRIs from all over the world. Speaking during the ceremony, Hirander Misra said “It is an absolute privilege to receive this award and be recognised for my work in the fintech capital markets arena for the last 26 years, a decade of which has been at GMEX Group, which I co-founded.” He added “I thank The NRI Welfare Society of India for this accolade and really value the work they are doing to ensure strong links between India and its diaspora.” “We are proud of NRIs like Hirander Misra for making substantial contributions in strengthening India’s position in the global economy,” said Mr. Deepak Singh, convener of the NRI Welfare Society of India. Media Contacts GMEX Group Melanie Budden The Realization Group Tel: +44 (0)7974 937 970 melanie.budden@therealizationgroup.com pr@gmex-group.com About GMEX Group GMEX is a global market infrastructure vendor providing multi-asset trading, exchange matching engine and post-trade business solutions, and Ecosystem-as-a-Service (EsaaS) technology. These include, the GMEX MultiHub, which is a cloud based trading and post trade digital market infrastructure platform that as a ‘multi-asset network of networks’ facilitates a first of its kind collaboration across major institutions, regulatory regimes and start-ups with the goal of bringing digital assets to a wider audience. For more information visit www.gmex-group.com or Twitter @GMEX_Group

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Finicity signs Data Access Agreement with Brex

Finicity, Brex | December 23, 2020

Finicity, a Mastercard company and driving supplier of open banking solutions, declared today that it has consented to a data access arrangement with Brex, a company that is rethinking financial systems so every developing business can understand their maximum capacity. Through this agreement, Finicity is expanding its authority in direct data access using an application programming interface (API) to fintechs as data stewards. Brex customers will presently have the option to safely interface their records to apps that utilization Finicity's safe data organization. For instance, a Brex customer may coordinate their accounting app to automatically get their Brex account exchanges, or even authorization a survey of their income to build up a credit extension to develop their business. “Finicity has been collaborating in earnest with financial institutions in signing data access agreements with banks and other traditional financial institutions. With our agreement with Brex, we are now extending our approach to fintechs,” said Finicity CEO and Co-founder Steve Smith. “We look forward to working with Brex in pioneering the way financial data is utilized to help businesses grow and achieve their goals.” Finicity and Brex utilize the Financial Data Exchange (FDX) API standard, which use OAuth 2, a standard for safely verifying and approving record access. OAuth takes out the requirement for account holders to share their login certifications with outsiders while permissioning the utilization of their data. “Growing companies need to move fast, which requires the ability to integrate their financial accounts with their external software,” said Yelena Reznikova, Director of Product Partnerships at Brex. “We partnered with Finicity so that our customers can seamlessly connect their Brex accounts to their existing software stack and scale their business faster.” Finicity has set up associations with a wide assortment of administration and application suppliers that permit people and associations to all the more likely understand, oversee, and control financial cycles everything from budgeting, payments, and borrowing to transacting, investing, and lending. Finicity works with a considerable lot of the most famous PFM (personal financial management) tools accessible available today, just as a significant number of the biggest moneylenders and imaginative installment suppliers, among a wide assortment of different administrations. About Finicity Finicity, a Mastercard company, helps individuals, families, and organizations make smarter financial decisions through its safe and secure access to fast, high-quality data. The company provides a proven and trusted open banking platform that puts consumers in control of their financial data, transforming the way we experience money for everything from budgeting and payments to investing and lending. Finicity partners with influential financial institutions and disruptive fintech providers alike to give consumers a leg up in a complicated financial world, helping to improve financial literacy, expanding financial inclusion, and ultimately leading to better financial outcomes. Finicity is headquartered in Salt Lake City, Utah.

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Ethereum Tokens to Trade on Swiss Stock Exchange via R3 Tech

coindesk | June 27, 2019

Public blockchain tokens will soon be trading on a major securities exchange. Revealed exclusively to CoinDesk, Swiss security token firm BlockState plans to “passport” half a dozen ERC-20 tokens from ethereum, the second-largest public blockchain, to Corda, the private distributed ledger technology (DLT) platform developed by R3. Before the end of the year, the tokens will be locked up in a smart contract on ethereum and “mirrored” versions of them will run on Corda. This is akin to global depository receipts, where shares of a company are held in custody in one country and a certificate representing ownership of them is traded in another.

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Hirander Misra of GMEX Group receives the Hind Rattan Award

GMEX Group | April 18, 2022

London, New Delhi, 14 April 2021 - Hirander Misra, Chairman & CEO of GMEX Group, a leader in digital business and technology solutions for exchanges and post-trade market infrastructure, has received the prestigious Hind Rattan award. The Hind Rattan, translated into English as "Jewel of India", is one of the highest awards granted annually to non-resident persons of Indian origin in recognition of their outstanding services, achievements, and contributions in their respective fields. It is awarded by the NRI Welfare Society of India at the Society’s annual congress. The Hind Rattan Awards honour high achievers of Indian origin from professional disciplines. Over the past 41 years, the NRI Welfare Society of India has become a strong bridge connecting people of Indian origin with India. Its focus is to "strengthen emotional bonds" between the diaspora and the country. The Hind Rattan award was presented on 14th April 2022 during the 41st International Convention of Non-Resident Indians (NRI’s) at the Constitution Club in New Delhi. The award ceremony was attended by members of the Indian Parliament, the Government of India and the Supreme Court of India, other preeminent dignitaries, business leaders, celebrities and NRIs from all over the world. Speaking during the ceremony, Hirander Misra said “It is an absolute privilege to receive this award and be recognised for my work in the fintech capital markets arena for the last 26 years, a decade of which has been at GMEX Group, which I co-founded.” He added “I thank The NRI Welfare Society of India for this accolade and really value the work they are doing to ensure strong links between India and its diaspora.” “We are proud of NRIs like Hirander Misra for making substantial contributions in strengthening India’s position in the global economy,” said Mr. Deepak Singh, convener of the NRI Welfare Society of India. Media Contacts GMEX Group Melanie Budden The Realization Group Tel: +44 (0)7974 937 970 melanie.budden@therealizationgroup.com pr@gmex-group.com About GMEX Group GMEX is a global market infrastructure vendor providing multi-asset trading, exchange matching engine and post-trade business solutions, and Ecosystem-as-a-Service (EsaaS) technology. These include, the GMEX MultiHub, which is a cloud based trading and post trade digital market infrastructure platform that as a ‘multi-asset network of networks’ facilitates a first of its kind collaboration across major institutions, regulatory regimes and start-ups with the goal of bringing digital assets to a wider audience. For more information visit www.gmex-group.com or Twitter @GMEX_Group

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Finicity signs Data Access Agreement with Brex

Finicity, Brex | December 23, 2020

Finicity, a Mastercard company and driving supplier of open banking solutions, declared today that it has consented to a data access arrangement with Brex, a company that is rethinking financial systems so every developing business can understand their maximum capacity. Through this agreement, Finicity is expanding its authority in direct data access using an application programming interface (API) to fintechs as data stewards. Brex customers will presently have the option to safely interface their records to apps that utilization Finicity's safe data organization. For instance, a Brex customer may coordinate their accounting app to automatically get their Brex account exchanges, or even authorization a survey of their income to build up a credit extension to develop their business. “Finicity has been collaborating in earnest with financial institutions in signing data access agreements with banks and other traditional financial institutions. With our agreement with Brex, we are now extending our approach to fintechs,” said Finicity CEO and Co-founder Steve Smith. “We look forward to working with Brex in pioneering the way financial data is utilized to help businesses grow and achieve their goals.” Finicity and Brex utilize the Financial Data Exchange (FDX) API standard, which use OAuth 2, a standard for safely verifying and approving record access. OAuth takes out the requirement for account holders to share their login certifications with outsiders while permissioning the utilization of their data. “Growing companies need to move fast, which requires the ability to integrate their financial accounts with their external software,” said Yelena Reznikova, Director of Product Partnerships at Brex. “We partnered with Finicity so that our customers can seamlessly connect their Brex accounts to their existing software stack and scale their business faster.” Finicity has set up associations with a wide assortment of administration and application suppliers that permit people and associations to all the more likely understand, oversee, and control financial cycles everything from budgeting, payments, and borrowing to transacting, investing, and lending. Finicity works with a considerable lot of the most famous PFM (personal financial management) tools accessible available today, just as a significant number of the biggest moneylenders and imaginative installment suppliers, among a wide assortment of different administrations. About Finicity Finicity, a Mastercard company, helps individuals, families, and organizations make smarter financial decisions through its safe and secure access to fast, high-quality data. The company provides a proven and trusted open banking platform that puts consumers in control of their financial data, transforming the way we experience money for everything from budgeting and payments to investing and lending. Finicity partners with influential financial institutions and disruptive fintech providers alike to give consumers a leg up in a complicated financial world, helping to improve financial literacy, expanding financial inclusion, and ultimately leading to better financial outcomes. Finicity is headquartered in Salt Lake City, Utah.

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Ethereum Tokens to Trade on Swiss Stock Exchange via R3 Tech

coindesk | June 27, 2019

Public blockchain tokens will soon be trading on a major securities exchange. Revealed exclusively to CoinDesk, Swiss security token firm BlockState plans to “passport” half a dozen ERC-20 tokens from ethereum, the second-largest public blockchain, to Corda, the private distributed ledger technology (DLT) platform developed by R3. Before the end of the year, the tokens will be locked up in a smart contract on ethereum and “mirrored” versions of them will run on Corda. This is akin to global depository receipts, where shares of a company are held in custody in one country and a certificate representing ownership of them is traded in another.

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